After having rebounded from a bearish run on Wednesday after UK labour market data indicated improvement, the Pound has extended the advance on Thursday after Bank of England policymaker Martin Weale gave a hawkish speech. Meanwhile, the Australian Dollar is suffering as the result of the worst commodities slump in five years.
The Pound Sterling to Australian Dollar exchange rate is currently trending in the region of 1.8307.
On Wednesday the Pound managed to reverse a prolonged bearish run after domestic labour market data printed above expectations. Of most significance (in terms of pressurising the BoE to react hawkishly ) were modest growth in wages and declination in unemployment.
Much to the Reserve Bank of Australia’s pleasure the ‘Aussie’ (AUD) has steadily declined irrespective of positive economic data. With the massive decline in commodities and geopolitical concerns accelerating risk aversion, the Australian Dollar has softened considerably since the RBA highlighted overvaluation.
The Pound Sterling to Australian Dollar exchange rate has fallen to a low today of 1.8128.
Thursday has seen Sterling extending the gains initiated on Wednesday thanks to Bank of England policymaker Martin Weale making a hawkish speech in Hull. Weale argued that the decline in unemployment should be met with a rate increase in anticipation of inflationary pressures.
Additionally, Mr. Weale stated that a fall in unemployment is likely to correlate with larger wage growth. Higher wages increase costs for businesses and also lead to higher consumer spending, both factors that drive prices higher.
‘The tightening of the labour market means that, instead of waiting to see wage growth pick up, I think it is appropriate to anticipate that wage growth,’ he said. ‘The margin of spare capacity is shrinking rapidly and all logic suggests that ought to lead to an increase in inflationary pressures over the two to three-year horizon which concerns the Committee.’
Weale added; ‘If the bank rate is already at its floor it cannot be reduced to offset any impact of this on demand,’ he said. ‘Thus…it might be necessary to look through price changes less than fully on the downside.’
The Australian Dollar has extended losses on Thursday after commodities were seen to drop to a five-year low, led by the oil slump.
‘It is clear the positive momentum seen in this sector over the last 12 months has faded,’ said Jim Lennon, senior commodities consultant at Macquarie Group Ltd., in a report. ‘Output from the world’s factories, mines and power stations shrank in August, a poor backdrop for commodities demand.’
Thursday’s Australian data has had little effect in terms of overshadowing commodity cuts. Consumer Inflation Expectation declined from 3.5% to 3.4%. An appreciation in Chinese Foreign Direct Investment hasn’t been enough to curtail the ‘Aussie’ downtrend.
Forecast for the Pound to Australian Dollar Exchange Rate
With an absence of British economic data on Friday the Pound is likely to either hold its gains or continue to trending higher against high-yielding or commodity-correlated currencies. A speech by BoE official Sir Jon Cunliffe later on Thursday may affect proceedings, especially if the speech has dovish overtones.
A lack of Australian data on Friday will likely see the Australian Dollar continue to depreciate. With commodity cuts, geopolitical tensions and fears over global economic growth driving the currency market there is very little room for ‘Aussie’ appreciation.
The Pound Sterling to Australian Dollar exchange rate has reached a high today of 1.8318.
Australian Dollar (AUD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Australian Dollar,
,US Dollar,0.8713,
Australian Dollar,,Euro,0.6808,
Australian Dollar,,Pound,0.5451,
Australian Dollar,,New Zealand Dollar,1.1006,
US Dollar,,Australian Dollar,1.1474,
Euro,,Australian Dollar,1.4682,
Pound Sterling,,Australian Dollar,1.8339,
New Zealand Dollar,,Australian Dollar,0.9086,
[/table]
